Buy Varun Beverages; target of Rs 625: Asit C Mehta

Asit C Mehta report on Varun Beverages

We initiate coverage on Varun Beverages Ltd. with a “BUY” rating. We like the company for its demonstrated execution capabilities in India, further headroom for distribution expansion in India, continued territorial expansion in Africa, international margin improvement and strengthening ties with PepsiCo. Industry tailwinds and VBL’s expanding reach to aid growth in India VBL already contributes 90% of PepsiCo’s beverage volume in India, as it holds the franchise rights for almost all sub-territories in the country. Further growth is expected due to the rising per capita consumption for the soft drink industry along with expanding capacities and deepening distribution reach by VBL. From the current 4 mn retail touchpoint presence, VBL is growing its reach by 10-12% each year, as it has a huge headroom to cover considering 12 mn FMCG retail outlets. To service this demand, it has expanded its capacities by 45% between CY22 and CY24, and by a further 25% in CY25.

Outlook

We value the shares of VBL at 52x its CY26E EPS of Rs 12, arriving at a price target of Rs 625. With an upside potential of 23.2%, we assign a “BUY” rating on the shares of Varun Beverages Ltd.